Plan denied: Court says CCS Medical creditors have company overvalued

CCS Medical Inc., one of the nation’s largest suppliers of products for people with diabetes and other chronic health conditions, could be on the auction block, after a bankruptcy court judge refused to confirm the company’s plan to reorganize its debts.

The reorganization plan would have transferred majority ownership to Highland Capital Management LP, the company’s largest creditor. U.S. Bankruptcy Judge Christopher Sontchi denied confirmation of the Chapter 11 reorganization plan Oct. 23 after other creditors said the plan undervalued CCS Medical.

CCS now is challenging all its creditors to “put their money where their mouth is,” it said in an Oct. 30 court filing that asks for the judge’s approval to test the company’s value in the free market through an auction.

While the case winds its way through bankruptcy court, a spokeswoman said it’s business as usual at Clearwater-based CCS, among the largest privately owned companies in the Tampa Bay area with $487.8 million in revenue last year. The court approved orders allowing CCS to pay its vendors and employees, and to access its $10 million debtor-in-possession financing.

Under the gun

CCS expected a quick exit from bankruptcy when it filed for Chapter 11 July 8 in the U.S. Bankruptcy Court for the District of Delaware. It offered a pre-arranged plan of reorganization to reduce debt from about $522 million to about $200 million.

Private equity giant Warburg Pincus formed CCS in 2005 when it bought CCS Medical in Clearwater and MP Total Care in Tampa and merged them in a deal valued at $645 million. While the business has grown from a patient standpoint since then, events of the past three or four years have left the company with insufficient earnings to support its debt, court filings said.

Projected savings from the 2005 merger never materialized, and a 2007 effort to go public and raise up to $172.5 million fell through when tough market conditions forced a withdrawal of the initial public offering.

Goldman Sachs & Co., hired in early 2009 to explore options, unsuccessfully tried to sell the company. Goldman valued it at no more than $286 million, but the creditors fighting the reorganization plan said it is worth between $400 million and $500 million.

CCS now is backing a fast-track auction, saying it is “under the gun” to emerge from Chapter 11 quickly because of a new competitive bidding program from the Centers for Medicare & Medicaid Services.

Under the program, CMS will award bids to provide certain medical supplies in nine metro areas, including Miami and Orlando, determining participation in the federal Medicare program. A “significant portion” of CCS’ revenue relates to the CMS program, and the company could sustain “substantial damage” if its fails to qualify for it, court filings said.

Debt driving deals

CCS Medical is among a record number of companies that have filed for bankruptcy so far this year, including 249 companies taken private by buyout firms, according to an analysis in the Nov. 2 issue of BusinessWeek. Henry Miller, chairman of investment bank Miller Buckfire, which advises on restructurings, told the magazine that private-equity backed firms are vulnerable because so many were bought at the top of the market and loaded up with debt.

Lazy Days R.V. Center Inc. in Seffner, owned by private equity firm Bruckmann Rosser Sherrill & Co., just joined the list. Lazy Days filed a “pre-packaged” restructuring plan Nov. 5 after receiving approvals from its lenders and bondholders. The company, hit hard by the impact of the recession on the recreational vehicle industry, said it expects to eliminate all of its $137 million in bond debt.